On the nature of social business model innovation

Wolfgang Spiess-Knafl, Zeppelin University, Germany*

Clemens Mast, Zeppelin University, Germany
Stephan A. Jansen, Zeppelin University, Germany

ABSTRACT
Purpose
Business model innovation is a widely discussed research topic which spans all
sector boundaries. There is a growing body of literature in the for-profit sector
which covers business model innovation. This study analyses what constitutes
business model innovation for social enterprises and identifies different types
and explains their rationales. The various components which make up a social
business model will also be discussed.
Design/methodology/approach
The study is based on a dataset of awards for social innovations in the years
2011 and 2012. In total, 28 competitions, 30 funding institutions, 11 academic
institutions and 3 governmental organisations were identified, and between them
they awarded 1020 social organisations. 204 of these social organisations had an
innovation based on a business model innovation.
Findings
Six types of social business model innovation could be identified, which were
opportunity creation, smart distribution, ecosystem engineering, cheap sourcing,
smart pricing and inclusive production.
Contribution
This study’s main contribution to the body of literature is the identification of
different types of social business model innovations and the empirical review of
these patterns on a global basis.

Keywords Social entrepreneurship, Social innovation, Social business model

innovation, Business model innovation

*Correspondence details and biographies for the authors are located at the end of the article.

SOCIAL BUSINESS, 2015, Vol. 5, No. 2, pp.113-130

http://dx.doi.org/10.1362/204440815X14373846978624
ISSN2044-4087 print /ISSN2044-9860 online © Westburn Publishers Ltd.
114 Social Business, Volume 5

INTRODUCTION

Business model innovation is a widely discussed research topic which spans all sector
boundaries. There is a growing body of literature in the for-profit sector which covers
business model innovation.
Although business model innovation seems to be equally or even more relevant
for social enterprises, it has been only sparsely discussed. Social enterprises can rarely
rely on market mechanisms as donors, and governments often subsidise the service
provision and thus the quality of the product, however, service is not as important
as for for-profit companies (Achleitner, Spiess-Knafl, & Volk, 2014). Additionally,
social enterprises have a more diverse set of stakeholders which need to be taken
into account. Beneficiaries might have different expectations than capital providers
(Jäger, 2010).
Moreover, social enterprises often have access to philanthropic funding, can
mobilise volunteers to deliver their services (Gassler, 1998; Vesterlund, 2006) and
have a higher moral legitimacy (Dart, 2004). Social enterprises also have challenges
of governance as they combine charity and business logics at their core (Ebrahim,
Battliana, & Mair, 2014). This is often referred to as double bottom line or a blended
value proposition (Emerson, 2003), although the social value creation remains difficult
to measure (Kroeger & Weber, 2014). The characteristics of social enterprises hint at
the fact that they must be doing something differently to for-profit companies.
However, there is a lack of understanding of how social enterprises operate and
which business models and business model innovations can be observed. Although a
few articles have elaborated on social business models, there is still a research gap on
the understanding of business model innovations for social enterprises (Zott, Amit,
& Massa, 2011).
This study will analyse what constitutes business model innovation for social
enterprises and identify different types and explain their rationales. The various
components which make up a social business model will also be discussed.
A review of the existing literature on business model innovation will be made.
Then, the dataset for this study, which is to our knowledge the first quantitative
study of social business model innovation on a global basis, is presented. The study
is based on a dataset of awards for social innovations in the years 2011 and 2012.
In total, 28 competitions, 30 funding institutions, 11 academic institutions and 3
governmental organisations were identified, and between them they awarded 1020
social organisations. Two hundred and four of these social organisations had an
innovation based on a business model innovation.
There follows an explanation of the methodology which was applied to identify the
characteristics of business model innovation in the social sphere and a discussion of the
findings. This study’s main contribution to the body of literature is the identification
of different types of social business model innovations and the empirical review
of these patterns on a global basis. Further contribution to the current literature is
imparted by deepening the understanding of social business model innovation.

LITERATURE REVIEW

Social business model innovation can draw from related areas such as social
innovation, business model and business model innovation. All three areas have been
 Spiess-Knafl, Mast & Jansen Social business model innovation 115

relevant for decades, but it has only been recently that they have attracted significant
attention both in economic sciences and business practice.

Social innovation
Social innovation is closely linked with social entrepreneurship, often being a
definitional criterion for social enterprises (see e.g., Dees, 1998; Zahra, Gedajlovic,
Neubaum, & Shulman, 2009). The term social entrepreneurship has been used in the
media and academic literature since the late 1980s (Danko, Brunner, & Kraus, 2011),
although the first examples of social entrepreneurship can be found in previous
centuries (Bornstein, 2004). Social enterprises provide services or products with a
social goal which can be the production process itself when, for example, persons
with autism or physical disabilities are employed (e.g., for a definition see Jansen et
al., 2010; Mair & Marti, 2006).
Social innovations are a main focus in the literature on social entrepreneurship,
with very diverse approaches. Rüede & Lurtz (2012) cluster the existing literature
on social innovation into seven categories, which are focused on human well-
being in societies, social practices, human-centred community development, work
organisation, non-technological aspects of innovation, social work provision, or
innovations in a digital world setting. Examples often discussed in this context are
social enterprises creating job opportunities for previously marginalised communities
such as blind women, social franchises to lower youth unemployment, or concepts
for people with dementia (Kopf, Müller, Rüede, Lurtz, & Russo, 2015).

Business model
For-profit companies as well as social enterprises can offer products or services or a
combination of both. What both have in common is that these offers are embedded
within a system of activities and relationships which describe the firm’s business
model (Chesbrough & Rosenbloom, 2002). In recent years, a range of academic
attempts to establish a common definition of business models has emerged, and
the term business model became associated with different notions (e.g., Casadesus-
Masanell & Ricart, 2010; Morris, Schindehutte, & Allen, 2005; Zott, Amit, &
Massa, 2011). Some roles and functions are assigned to business models, like the
characterisation of a value proposition (e.g., Johnson, Christensen, & Kagermann,
2008; Magretta, 2002; Teece, 2010) or the identification of customer segments and
possible target markets (Chesbrough & Rosenbloom, 2002; Magretta, 2002; Morris
et al., 2005). Business models can also be described through revenue mechanisms and
cost structures (Johnson et al., 2008; Teece, 2010; Timmers, 1998). The competitive
strategy and stretching of organisations’ boundaries are associated with business
models, as well as choosing the business environment and outlining key resources
and processes (Casadesus-Masanell & Ricart, 2010; Johnson et al., 2008; Zott et
al., 2011).
In the broadest sense and depending on the particular focus of each definition,
a business model reflects how firms do business and describes the rationale of how
an organisation creates, delivers and captures economic, social or other forms of
value (Kaplan, 2012; Osterwalder & Pigneur, 2010; Zott et al., 2011). In line with
others, we define a business model as a meta logic of all activities and relationships
of an enterprise to create and appropriate value (Chesbrough & Rosenbloom, 2002;
Teece, 2010; Zott et al., 2011).
116 Social Business, Volume 5

Business model innovation

Over the last few years, business models themselves have become subject to innovation.
The shift of importance in innovation towards business models is supported by the
increasing demand for customer centricity, as it replaced traditional supply-driven
business logics (Teece, 2010). Organisations started to realise that conventional
business models were failing in directing activities not only to existing but also to
potential customers (Chesbrough, 2010). This intensified the need to innovate one’s
own business model, reinforcing the importance for business model innovation
(Baden-Fuller & Morgan, 2010; Mitchell & Coles, 2004).
Business model innovation could thus be defined as a continuous reaction to
changes in the environment (Demil & Lecocq, 2010), as a result of a firm’s strategy
(Casadesus-Masanell & Ricart, 2010; Mitchell & Coles, 2003), as an ongoing learning
process (McGrath, 2010; Sosna, Trevinyo-Rodriguez, & Velamuri, 2010), and as a
discovery-driven, trial-and-error-based process rather than as an analytical approach
(Smith, Binns, & Tushman, 2010; Sosna et al., 2010). We understand business
model innovation as an implementation of a product or service, or a combination
of both, that is a significant improvement or that is new to the sector regarding its
characteristics or intended uses.

BUILDING BLOCKS OF SOCIAL BUSINESS MODEL INNOVATION

There is limited research on social business model innovation. Research on business

model innovation in general has focused so far on components and processes. The
authors identify in this section separate building blocks which have been covered in
the literature before. In the literature, four different fields can be identified, which
are resources, inclusion, distribution and pricing. The four types are subsequently
used to work on the typology of social business model innovation.

Resources
Social enterprises are often referred to as being skilled in attracting resources and
building their business model around the acquisition of them. Leadbeater (1997) sees
social entrepreneurs as able to identify underutilised resources, which can include
people, and buildings and equipment, and embed them in their business model.
Dees (1998) adds that they collaborate with partners to leverage their own limited
resources.
Partnership with for-profit companies can provide them with in-kind donations
for which they find efficient uses (Gray, 2007). Examples include outdated computer
equipment, soon-to-expire food products, or other products which are often sold at
charity shops. Social enterprises are also extracting value from products which would
have otherwise been wasted. This is what the Ellen MacArthur Foundation (2013)
refers to as a circular economy. Feasible products are textiles or waste which can be
separated and recycled.
Another form of resource acquisition is volunteering. Volunteers are an important
workforce for non-profit organisations and are often considered as the backbone of
civil society (Linardi & McConnell, 2011; Preston, 2007). Especially, small social
enterprises with limited budgets need volunteers to provide their services to the target
group (e.g., Scheuerle, Schmitz, Spiess-Knafl, Schües, & Richter, 2013). Besides
volunteers, social enterprises also have access to a social capital market to fund
 Spiess-Knafl, Mast & Jansen Social business model innovation 117

their operations: crowd-funding platforms give them the opportunity to generate

funding from a large number of individuals, value banks are providing loans, venture
philanthropy funds are giving tailored funding, and there are even social investment
banks established. Those capital providers have distinct institutional logics, often
combining different practices (Mair & Hehenberger, 2014). Most of them are also
reducing their financial return expectations to support the social goal of the social
enterprise (Achleitner, Heinecke, Noble, Schöning, & Spiess-Knafl, 2011).

Inclusion
Firms are often viewed as resourceful actors in realising the goal to build inclusive
business models (Arora & Ali Kazmi, 2012). Marginalised communities are not only
seen as customers but also as employees, producers and business owners (United
Nations Development Programme, 2008). The European Commission defines the
undertaking of social enterprises as either providing services or goods or as employing
a method of production that embodies its social objective (Spiess-Knafl & Jansen,
2013). These models are often referred to as inclusive business models.
The first category of inclusive business models involves disabled individuals
manufacturing products, or blind people working as switchboard operators. Those
models are usually dependent on the customer’s willingness to pay a premium for
the product, or some kind of financial support for the cost of the operations. The
second category of inclusive business models is dependent on the special skills of
the target group. Persons with autism are employed to detect programming errors.
Blind people, with their exceptional tactile sense, can be employed in breast cancer
detection.

Distribution
Social enterprises have limited budgets and their usually low profitability reduces
their ability to accumulate capital for future investments. Social enterprises thus need
to find alternative ways to reach their customers and thus develop innovative business
models. This is even more relevant in developing countries in which the infrastructure
is not as developed (Mair, Marti, & Ventresca, 2012). In developing countries, it is
important to use existing infrastructure and find efficient ways to deliver the services.
In the well-covered case of Cola Life, medicaments are transported using the sales
channel of soft drinks (see http://www.colalife.org/). Cross-sector partnerships
between nonprofit and for-profit organisations might thus be one tool to achieve
these scales (Le Ber & Branzei, 2009).
Another way to distribute the services is through the use of digital infrastructure.
IT-based business models have the benefit that the marginal costs are low, and
allow the social enterprise to provide the services to the target group without high
additional costs. Digital developments and the widespread use of mobile phones also
increase the opportunities to reach the target group. These models are usually limited
to business models focused on information services (Spiess-Knafl & Jansen, 2014).

Pricing
Price discrimination and pricing strategies are important components of business
models to support the social mission. Steinberg & Weisbrod (1998) have analysed
a number of price-based allocation mechanisms that non-profit organisations can
use. There is a number of non-discriminating price strategies, such as in museum
shops or for catering services. However, some services discriminate according to the
118 Social Business, Volume 5

income level or easily verifiable characteristics of the beneficiary, which is an accepted

strategy for social sector organisations and is also feasible for for-profit organisations
given that there are many discounts for students, retirees or veterans. In some cases,
even a self-discriminating price scheme is applied in which the beneficiary determines
his own level of funding that he wishes to provide. This strategy is hardly applicable
for the for-profit sector given that there is a lower level of peer control. Moreover,
non-profit organisations can allocate their services through weekday-sensitive price
discrimination or pay in-kind schemes whereby the beneficiary might pay through
work for the organisation.
Moreover, there is also evidence for a certain willingness from consumers to pay
for the services of a social enterprise (Engelke, Mauksch, Darkow, & von der Gracht,
in press, Online 2014). Social enterprises might thus be able to charge higher prices
which cross-subsidise the consumption of lower-income segments.

RESEARCH METHOD

Data collection
A number of organisations award prizes for social innovations to social enterprises
on a global basis (see Table 1 for examples). For this study, 28 competitions, 30
funding institutions, 11 academic institutions and 3 governmental organisations have
been identified through desktop research. The awarding bodies had as a primary aim
the identification and support of innovative social organisations. The two criteria
to select the awarding bodies were a focus on social value creation and innovation.

TABLE 1 Largest awarding bodies in each category with number of awards

Funding institution/
Competition Foundation University Government
SozialMarie (Austria), Ashoka (Global), 156 MIT Ideas Global US Social
62 Challenge (US), 26 Innovation
Fund, 9
Cartier’s Women’s Schwab Foundation Bertha Centre for The Australian
Initiative Award (Global), 57 Social Innovation and Centre
(France), 35 Entrepreneurship, for Social
Cape Town (South Innovation, 7
Africa), 6
Dell Social Innovation Westly Foundation (US), Foster School of Naples 2.0
Challenge (US), 35 40 Business (US), 5 (Europe), 7
Social Innovation Echoing Green Fellows Urban Innovation
Camp (Global), 34 (US), 40 Fellows, Tulane
University (US), 4
Trigos (Austria), 30 SAB Foundation (South Heinz College (US), 3
Africa), 25
PopTech (US), 26 Propeller, Social Social Enterprise
Innovation Fellows Student Competition
(US), 23 (Canada), 3
HP Social Innovation AECF, Funding New Day Challenge,
Relay (Global), 24 Innovation for Tulane University
Business in Africa, 21 (US), 3
 Spiess-Knafl, Mast & Jansen Social business model innovation 119

An overview of the organisations is given in Table 1, which shows the largest

organisations for each category and the country where they are based. There were
no language-based problems in collecting the information as the authors were either
fluent in the language or could access an English version of the competition.
For each competition, the number of awardees was counted and the characteristics
of the social enterprises collected. Those characteristics include name, country of
headquarters, sector and description of the concept, as well as the target group
and the year of foundation if available. The characteristics were collected using a
desktop research approach, including company websites, information provided by
the awarding organisations or general websites and newsletters. For each category,
the seven major organisations are listed (see Table 1).
Organisations based in North America account for 37% of all awards, followed by
organisations with a global reach (28%), organisations based in Europe and Central
Asia (19%) and those based in Sub-Saharan Africa (12%). Although North America
accounts for 37% for all awards, a regional bias is unlikely.

Data filtering
In a second step, the authors created a filter process to identify the social business
model innovations in the sample. In a triple-rater process, all initiatives were
identified that had an innovation which covered more than a product, process or
service innovation. Based on the literature on business model innovation, a further
criterion was the existence of at least two different stakeholder groups. Moreover, a
continuing business model which excluded all project-based initiatives was required.
Additionally, all 46 corporate social responsibility initiatives which have been
awarded a prize were eliminated as they cannot be considered to be a pure play
business model innovation. Moreover, the 133 student initiatives were not considered
for the sample as they are mainly based on ideas generated within a university course
and it is not clear if the business models would be feasible in reality.
This triple-rater filter process resulted in a total of 204 social organisations. Table
2 shows the regional distribution of the social innovations identified. The largest
part of the awards with a business model innovation are based in Sub-Saharan Africa
(37%) followed by North America (21%) and Europe and Central Asia (15%).

Data analysis
The data analysis was conducted with the intention to classify the social business
model innovations identified in the sample. The four categories based on the literature
in the field were the starting point for the analysis.

TABLE 2 Number of awards per region

Region Awards
North America 43
East Asia & Pacific 13
Europe & Central Asia 30
Latin America & the Caribbean 18
Middle East and North Africa 5
South Asia 19
Sub-Saharan Africa 76
120 Social Business, Volume 5

TABLE 3 Types of social business model innovation

Type of innovation Number Percentage

Opportunity creation 47 23.0%
Smart distribution 46 22.5%
Ecosystem engineering 35 17.2%
Cheap sourcing 30 14.7%
Smart pricing 26 12.7%
Inclusive production 20 9.8%
Total 204 100%

The first category as described earlier was cheap sourcing which included those
business models based on volunteering, extracting value from otherwise wasted
products and the identification of underutilised resources. The second category
inclusive production designates models which employ the target group as employees
and co-creators, such as in the sense of building your own house. The third category
which we termed smart distribution includes business model innovations based on
joint distribution channels and the creation of networks of empowered people. The
fourth category smart pricing includes price-discrimination strategies and the creation
of new non-traditional revenue streams.
In the iterative analysis, the sample was classified according to the four types.
If a social business model innovation in the sample did not match one of the four
categories, a new category was added and the classification of the previously classified
social business model innovations was checked again. This procedure was repeated
until all social business model innovation could be classified in this iterative process.
In the case of social enterprises which could be classified in two categories, the
dominant category was chosen.
The four types derived from literature (cheap sourcing, inclusive production, smart
distribution and smart pricing) account for roughly 60% of the sample. The two new
types identified in this analysis are opportunity creation and ecosystem engineering.
Opportunity creation refers to those business models where a social venture is
creating opportunities for the target group to become entrepreneurial themselves
as they provide, as an example, access to sales markets. Ecosystem engineers are
working on a complete range of activities from quality management to ownership
rights, logistics and operations management. Both models will be described in detail
later.
The distribution of the various types of social business model innovation is shown
in Table 3. We found opportunity creation in 23% of all cases followed by smart
distribution (23%), ecosystem engineering (17%), cheap sourcing (15%), smart
pricing (13%) and inclusive production (10%).

SOCIAL BUSINESS MODEL INNOVATION TYPOLOGY

In this section, we present the various types of social business model innovation we
have identified and take two or three examples in every category to make it more
understandable. We will also discuss possible interdependencies between them. The
six social business model types we have identified were (1) opportunity creation, (2)
 Spiess-Knafl, Mast & Jansen Social business model innovation 121

smart distribution, (3) ecosystem engineering, (4) cheap sourcing, (5) smart pricing
and (6) inclusive production.

Cheap sourcing
In this type of social business model innovation, social ventures develop a cost-effective
sourcing strategy and embed it into their business model. The sourcing activity is the
central element of this social business model innovation. Cheap sourcing refers to all
business models in which goods designated for waste are put to new value-enhancing
uses, volunteers are used to provide a part of the services of the social enterprises, or
underutilised infrastructure is identified and put to use to achieve the social mission.
The aim of this type of social business model innovation is to extend the social
enterprise’s input sources and open up possibilities to produce and offer cheaper
and more effective social solutions. The cost structure is thus based on the reduced
purchase price and allows the provision of services to a larger group of beneficiaries.
A social business model innovation example of this type is DataKind1. It connects
data scientists with social organisations which have the need to analyse existing data
but do not have the necessary skills. The social enterprise is helping other organisations
to improve their decision-making processes. Data scientists work on a pro-bono basis
for these projects and the organisation itself is funded through donations.
TRICICLOS2 is working in the recycling industry and tries to separate garbage
which has previously just been thrown in together in a black bag. The materials are
sold separately to increase the revenues and a certain percentage of the profit is given
back to the community. The social enterprise thereby reduces the environmental
impact and creates monetary benefit for the community.
These two cases show that the resources are either given on a voluntary basis or are
based on materials which were previously put to waste. However, the mobilisation of
non-market resources such as volunteers, in-kind donations or equipmen, necessitates
a social agenda, as people would not be willing to support a profit-oriented company
in a comparable way. In a model based on the identification of new resources, it is
helpful to have the legitimacy usually attributed to social enterprises as stakeholders
need to support this business model.

Inclusive production
In this type of social business model innovation, social ventures create new ways
involving and integrating persons with minimal or special qualifications in the
processes of their social business model. Inclusive production is based on the
provision of jobs for target groups such as disabled people, HIV-positive mothers
or people with autism. This kind of inclusive production is also often regularly
part of the marketing strategy of the social venture to justify a price premium. The
central business model element of this social business model innovation type is the
integration of persons with minimal or special qualifications as part of the value
creation of a product or service.
Social enterprises within the first category of inclusive production employ
disabled or long-term unemployed persons and try to build a production and
marketing strategy around this production approach. One example is Groupe La

1 http://www.datakind.org
2 http://www.triciclos.cl
122 Social Business, Volume 5

Varappe3. The social enterprise creates jobs for long-term unemployed persons. It
combines a two-year programme which consists of training and mentoring, with
employment opportunities in their companies. The companies are active in fields
such as construction, waste management, outdoor maintenance or renewable energy.
The second category is based on the special qualification of the employees of
which the Danish social enterprise Specialisterne4 is an example. Its approach is based
on the understanding that people with autism often have skills which are particularly
valuable in the labour market, such as a good memory or an eye for detail. IT-
companies such as SAP have entered into partnerships with the company to assess
and train specialist people for their own operations.
The employment of marginalised communities necessitates a range of supporting
measures. Blind people or people with autism need special conditions in the office.
Furthermore, the business will need to convince its customers to accept higher costs.
The strategy is also appropriate for for-profit companies to create a positive and
diverse environment for its employees.

Smart distribution
In this type of social business model innovation, the organisations were able to master
the challenge to make their products or services easily available to their target group.
Smart distribution is the term for those social enterprises which have found a way
to distribute their products or services to less accessible groups. The target group is
often based in remote areas or in a population segment which is not easily traceable.
In many cases, a smart distribution approach of the products or services leads to an
outreach of the originally targeted group.
An example of smart distribution is Indian-based Rang De5. Rang De has been
operating since 2008 in the field of microfinance and uses a peer-to-peer lending
model with a nominal cut of 1% on all loans repaid. Social investors around the
world can decide to fund a certain business listed on the company’s website. Rang De
then works together with a field partner which channels the loan to the business. This
cooperation helps the organisation to keep its costs low. This is a widespread model
for reaching the customers at the bottom of the pyramid (BoP) as the low volumes do
not allow the build-up of an expensive local infrastructure.
Paperight6 is a South-African based social enterprise enabling local print shops,
schools or colleges to print out books. The social enterprise has a library of books
which can be printed out at local points. It thereby reduces the costs for educational
material in rural areas.
The creation of a smart distribution system necessitates the set-up of new
partnerships for an organisation. As the new system also leads to substantial reductions
of intermediaries and middlemen, it is possible that a social enterprise needs a higher
legitimacy to be able to create those changes. However, introducing new concepts to
reach the target group is also an opportunity for profit-oriented companies.

3 http://www.groupelavarappe.fr
4 http://specialisterne.com
5 https://www.rangde.org
6 http://www.paperight.com The company closed at the end of March 2015 due to
disappointing sales.
 Spiess-Knafl, Mast & Jansen Social business model innovation 123

Smart pricing
In this type of social business model innovation, social ventures use pricing
innovations in order to make their social products or services affordable for their
specific target group. Smart pricing is based on varieties of price differentiation
and price mechanisms. Innovative pricing models have a long history in a business
model context and they are also relevant for social enterprises. There are different
innovative pricing models like the pay-per-use-pricing model or the pay-what-you-
want-pricing model.
In the pay-per-use model, the specific usage of a social service or product by
the customer is metered and charged. The participants of the target group benefit
from flexibility and pay for services based on their effective usage instead of a fixed
rate, which seems a fair pricing model because participants who use a social service
sparingly pay much less.
In the pay-what-you-want model, the attendees of the target group are the ones
who set the price to be paid for a social product or a service. The social enterprise,
as supplier of a social product or service, commits to accepting the price offered by
participants of the target group, even when it is below the actual value of the offering.
This pricing model assumes that each attendee of the target group understands the
value of a social product or solution and will pay an appropriate amount taking into
account the individual’s own financial resources.
In this type of social business model innovation, social norms such as fairness
function as a control mechanism. In addition, attendees of the target group typically
base their price on the cost of comparable products. They often perceive such pricing
schemes as advantageous since they are enabled to control incidental costs.
Social enterprises use their particular concept to subsidise the consumption of
one group through the higher price of another group. Social enterprises use cross-
subsidisation or pay-as-you-go-pricing to support their business model and make
their social solutions purchasable for their target group.
One example is M-KOPA7 with its pay-as-you-go-pricing model. The Kenyan
company was established in 2011 and provides solar-powered lighting and mobile
charging units to Kenyans. Customers pay a certain sum per day and after a year they
own the products. The company has developed a technology platform to facilitate
the payments. Through the solar-based product, it helps customers to reduce the
consumption of kerosene and their overall costs of energy production.
TABLE FOR TWO8 is a social enterprise that collects small amounts in cafeterias,
restaurants or vending machines to support the distribution of meals in developing
countries, while also advising on the creation of a healthy meal plan. In 2012, they
served more than 40 million meals.
Smart pricing can be a way to donate micro-amounts to the social mission or
a mechanism to enable the target group to access the service. While the donation
part is only available for social enterprises, for-profit companies can also work on
financing schemes which enable the wide use of the products and services.

Opportunity creation
In this type of social business model innovation, the business model of opportunity
creators is dedicated to creating opportunities for the target group. They have

7 http://www.m-kopa.com
8 http://www.tablefor2.org
124 Social Business, Volume 5

business models in which members of the target group get the opportunity to become
entrepreneurial themselves. Opportunity creators focus on an orchestral or directorial
function to support other parties to market their products or services.
Opportunity creation works well because it generally leads to a beneficial situation
for all parties involved. The opportunity can be additional sales channels or access to
formerly non-accessible markets. The opportunity creator assists in building strategic
partnerships that broaden and build the markets, and consequently increase the
income and strengthen the marketability. The target groups get support for building
their business in their own area by using their skills and knowledge. The income
streams are linked to revenue sharing agreements.
Building Markets9 is one example of this category. It was founded in 2004 as
Peace Dividend and operates as a non-profit organisation with its headquarters in
New York City. It aims to connect local entrepreneurs to the global market and give
them access to new business opportunities. Since 2006, it has helped business to win
over 16,000 contracts worth over $1.1 billion. The relevant connecting companies
include the United Nations and its agencies, and embassies, as well as multinational
corporations that have significant purchasing volumes in those areas. Although
there is a clear business model which could be based on a provision of the contracts
acquired, Building Markets is financing itself through donations by actors such as
international development agencies, foundations or multinational corporations.
Crowdflower10 is based in San Francisco and is breaking large digital projects into
small microtasks. Five million contributors have completed over a billion judgments
for the customers. It is thus creating small income opportunities for people around
the world.
Those models creating new income opportunities are not necessarily tied to social
enterprises, although social enterprises are probably better positioned to include the
most marginalised communities in their business model. Moreover, the opportunity
creators need some kind of trustworthiness to involve the stakeholders in their
approach.

Ecosystem engineering
In this type of social business model innovation, single products or services in a
defined environment will be merged together in order to create an ecosystem which
is even more valuable for the community. Good examples from other sectors are ski
resorts or sports leagues. Ski resorts are not successful until the complete infrastructure
consisting of ski lifts, restaurants, hotels, shops, transport or entertainment is
established. A hotel operator might support the creation of additional hotels as
it might increase the overall attractiveness of the ski resort. Similar mechanisms
apply to professional sports leagues. Sports leagues need a complete ecosystem of
competitors, infrastructure, training facilities and TV coverage to be successful.
Although a paradox, a successful sports team might support monetary transfers to
less successful sports teams to increase the overall attractiveness.
Similar models were identified for social enterprises. They are creating ecosystems
in which every participant is taking on a separate role and needs the involvement
of other enterprises to be successful. Social ventures engineering an ecosystem
are coordinating a range of different initiatives covering sales, logistics, quality

9 http://www.buildingmarkets.org
10 http://www.crowdflower.com
 Spiess-Knafl, Mast & Jansen Social business model innovation 125

management and even education and health management. Furthermore, these social
ecosystems enable collaborations between entities such as enterprises, institutions
or individuals. Ecosystem engineers have a coordination role in improving the
collaboration and have a certain role in which they find a monetisation strategy.
An example of ecosystem engineering is the holistic support approach of German
REGIONALWERT AG11. It was created in 2006 as a response to agricultural
problems among small farmers. The social enterprise aims to create an agricultural
value chain including cultivation, processing and marketing with an emphasis on
civic participation in the form of a citizen shareholder corporation. It also supports
other farmers and food business in securing necessary capital.
CRISTALINO LODGE12 is another example of ecosystem engineering. The
social enterprise not only set up an ecolodge in the Amazonas region but also a
range of environmentally-friendly development projects. These projects include a
tour operator employing mostly local people, and biodiversity research to improve
conservation measures. The mechanism described earlier is clearly visible in this case.
Every additional participant is increasing the attractiveness for tourists although
there might be some limit for the total number of participants.
The profit understanding might be different in this approach as it is attractive
when more participants join the ecosystem. There is also a range of implications
within this type of business model innovation. It is difficult to appropriate the profits,
as most of the value is created for the society and other actors in this ecosystem.
Capital providers might avoid these approaches as it might be infeasible to establish
income generating strategies.
Cooperatives seem to be a good organisational form for this type. Every participant
is providing capital and has a voting right in the decision-making processes of the
cooperative.

DISCUSSION

Findings
This article presents an explorative study into the different types of social business
model innovation. The findings are based on a unique global dataset of social
enterprises which were awarded for their innovative activities. It was possible to
identify four different types based on literature and two additional categories as
a result of the iterative empirical analysis. The six types of social business model
innovation which were identified in the analysis are shown in Table 4.
In the analysis, we have used the primary innovation type to classify the social
enterprise. In some cases, social enterprises combined a smart distribution concept
with opportunity creation. Distributors of the products get the opportunity to sell
the products as micro-entrepreneurs and thus increase the stability and attractiveness
for all stakeholders involved.
Inclusive production can be combined with cheap sourcing as individuals or
companies may be more willing to donate resources if those resources serve to
support the employment of disabled persons.

11 http://www.regionalwert-ag.de
12 http://cristalinolodge.com.br
126 Social Business, Volume 5

TABLE 4 Description of social business model innovation types

Type of innovation Description

Opportunity creation Creation of new entrepreneurial opportunities for the target
group
Smart distribution Development of distribution channels to reach customers
Ecosystem engineering Combination of initiatives to change an existing ecosystem or
create a new ecosystem
Cheap sourcing Identification of underutilised resources to support the
provision of the service
Smart pricing Use of pricing innovations to facilitate the consumption of the
services
Inclusive production Inclusion of disabled persons or persons with special skills in
the production process

With this article, we have contributed to an emerging research field which tries
to bridge social and financial value creation by drawing from the theory of social
innovation and business models as well as research from business model innovation.

Limitations
Given that our sample consists of 72 awarding bodies, we are confident that there
is no inherent bias in our sample. However, we have regional concentrations for
certain types of social business model innovation. It seems that cheap sourcing is a
business model innovation type that is more commonly found in industrial countries
as it is easier to find volunteers or identify underutilised infrastructure. It is probably
safe to assume that developing countries have less underutilised infrastructure than
industrial countries. This leads to the assumption that smart distribution is especially
relevant for social enterprises in emerging countries, as delivery channels need to be
implemented and developed. The assumptions for the other types of social business
model innovation are less clear. We have gathered the first evidence on how social
business model innovation can be classified and how it differs. For future research, it
might be relevant to investigate how different types are established in different areas.
The publicly available information did not provide us with information on the
financing structure of the social enterprises. There is evidence that some social business
models would rather not be financed with equity capital such as ecosystem engineers
or those relying on cheap resources, as the stakeholders will probably not accept
profit distribution to shareholders. Yunus, Moingeon and Lehmann-Ortega (2010)
propose the recruitment of social-profit oriented shareholders and the specification
of social profit objectives as a strategy to cope with these issues. The governance of
social enterprises remains an interesting aspect in the emerging research area of social
business model innovation.
Moreover, we are not able to analyse the effectiveness of different types of social
business model innovation. This relationship can be investigated in future research.

Implications
To the best of the authors’ knowledge, this article is the first global empirical analysis
of social business model innovation and entails implications for academia, managers
of for-profit companies and practitioners in the social sector.
 Spiess-Knafl, Mast & Jansen Social business model innovation 127

For academic research, this article can be seen as contributing to understanding

social business model innovation. Researchers can build on this article to develop
further analysis and theories in this field, e.g., value creation in social enterprises or
the combination of different types of social business model innovation.
This article also has implication for managers of for-profit companies. It could
be a viable strategy to enter a new market with a social business model and later try
to profit from the development of the market. Certain companies in the consumer
goods or microfinance field are already using this approach, with no evidence of
success or failure so far. Moreover, companies can enrich their current business
models with certain aspects. Inclusive production contributes to a more diverse
workforce, while cheap sourcing elements can contribute to innovative sourcing
strategies. Smart distribution and opportunity creation are relevant models to enter
markets with low-income populations and a lack of infrastructure, such as rural areas
of emerging countries. Smart pricing is already applied by for-profit companies and
it is not clear if strategies used by social enterprises can directly be applied by for-
profit companies when they necessitate voluntary price discrimination. Ecosystem
engineering is a model which is sometimes applied when for-profit companies define
their own industry standards or increase the living conditions of farmers along their
supply chain. Research can focus on the mechanisms within these ecosystems.
For practitioners in the social sector, it shows the importance of business model
innovation and the configuration of business models. The different types identified in
this paper can help social enterprises to better understand what drives their concept
as well as the implications of their business model. There is evidence that social
enterprises focus on a single type and usually do not combine different models. It can
also be used for foundation officers to better understand the business models of their
investees and evaluate the effectiveness of their approaches.

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ABOUT THE AUTHORS AND CORRESPONDENCE

Wolfgang Spiess-Knafl is a post-doctoral research fellow at the Civil Society Centre

and the Chair for Strategic Organisation & Financing at the Zeppelin University in
Friedrichshafen (Germany). After completing his studies in management engineering
at the University of Technology in Vienna in 2007, he worked as a financial analyst
for Morgan Stanley in Frankfurt until 2009. In 2009, he started working on his
doctoral studies at the Chair for Entrepreneurial Finance at the Technische Universität
München, which he completed in 2012. His research focuses on social finance and
social innovations.
Corresponding author: Wolfgang Spiess-Knafl, Zeppelin University, Chair for
Strategic Organisation & Financing, Civil Society Centre (CiSoC), Am Seemooser
Horn 20, 88045 Friedrichshafen, Germany.
E wolfgang.spiess-knafl@zu.de

Clemens Mast is a Research Fellow at the Chair for Strategic Organisation &
Financing at the Zeppelin University in Friedrichshafen (Germany). From 2009 to
2012, he completed his Master studies in Corporate Management and Economics,
at the Zeppelin University, with a focus on innovation and corporate strategy. His
research interests are focused on business models and business model innovation. In
his master’s thesis, he analysed the strategic direction and structure of digital business
models. Business model innovation with a particular focus on small and medium
sized enterprises is the main research interest of his dissertation.
Clemens Mast, Zeppelin University, Chair for Strategic Organisation & Financing,
Am Seemooser Horn 20, 88045 Friedrichshafen, Germany.

Stephan A. Jansen is Professor at the Chair for Strategic Organisation & Financing
and Director of the Civil Society Centre (CiSoC) at the Zeppelin University. From
2003 to 2014, he was also the founding president and managing director of Zeppelin
University in Friedrichshafen (Germany). He completed his undergraduate and
doctoral studies in business sciences in Witten, Herdecke. He was appointed Visiting
Researcher at Stanford University and Harvard Business School. His research interests
lie in the areas of organisation, network and management theory, and mergers, as
well as social entrepreneurship.
Stephan A. Jansen, Zeppelin University, Chair for Strategic Organisation &
Financing, Civil Society Centre (CiSoC), Am Seemooser Horn 20, 88045
Friedrichshafen, Germany.
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